Tuesday's Notable Market Action

• Options traders are looking for a continued rally in gold miners. From Andrew Wilkinson:

GDX – Market Vectors Gold Miners ETF – Shares of the gold ETF that invests in shares of precious metals mining companies are up 0.5% to $49.53 with one hour remaining in the trading session. Option implied volatility has come down from 54% to 46% recently as gold’s price has surged. Nearer-term investors sought downside protection on the fund, whereas long-term traders initiated bullish plays. Investors hoping to lock in gains experienced during the recent run-up in the price of gold purchased 4,000 puts at the January 2010 47 strike for 3.05 apiece. Further along, at the March 2010 44 strike, another 6,000 puts were picked up for an average premium of 3.10 per contract. Finally, long-term bullishness took the form of a call spread in the January 2011 contract. It appears one investor purchased about 5,000 calls at the January 50 strike for an average of 9.52 each, marked against the sale of the same number of calls at the higher January 55 strike for 7.55 each. The net cost of the optimistic play amounts to 1.97 per contract. The trader stands to accrue maximum potential profits of 3.03 each if shares of GDX rally 11% over the current price to $55.00 by expiration in January 2011.

• Goldman Sachs added Kroger (KR) to their conviction buy list with a $27 price target. They see food inflation causing price increases and helping to boost Kroger’s bottom line.

• Goldman Sachs added Ralph Lauren (RL) to their conviction buy list with a $94 price target.

• Goldman removed Coca Cola Enterprises (CCE) from their conviction buy list, but maintained their buy rating.

• Deutsche Bank upgraded Royal Bank of Scotland (RBS) to a buy.

• Some thoughts on the credit markets from Tim Backshall at CDR:

One notable divergence was the gap between the Jan2010 and Jan 2011 implied correlation (S&P vol not credit-based) which implies smoother sailing into year-end with any fear of a crash being pushed off to next year (maybe another contrarian signal?).

The names having the largest impact on IG are American International Group, Inc. (-22.13bps) pushing IG 0.14bps tighter, and Cardinal Health Inc. (+8.5bps) adding 0.07bps to IG. HVOL is more sensitive with American International Group, Inc. pushing it 0.62bps tighter, and Alcoa Inc. contributing 0.18bps to HVOL’s change today. The less volatile ExHVOL’s move today is driven by both FirstEnergy Corp (-9.75bps) pushing the index 0.1bps tighter, and Cardinal Health Inc. (+8.5bps) adding 0.09bps to ExHVOL.